Smokers roll up savingsMachines help many make own cigarettes

Mike Wilson has smoked half a pack of cigarettes a day since he was a teenager, the habit doing just as much harm to his lungs as it has his wallet.

"I know I should quit," said the 28-year-old, who does maintenance work for an apartment complex. "I think about it every time the price goes up."

Now, thanks to a new technology and a tax loophole, Wilson is among a growing number of smokers who have found a convenient, cheap way to buy cigarettes at a greatly reduced rate. But how long that option will be available could be in question.

At U.S. 31 Tobacco, just south of the Michigan state line, two Roll Your Own Filling Stations --

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each about the size of an old-fashioned jukebox -- fill a section of the floor.

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Customers select a flavor of tobacco and their own rolling papers, then insert them into the machine. In about eight minutes, the machine produces on average 190 to 200 "hand-rolled" cigarettes.

"It's very popular," said Mikyong Han, the store manager. "People really like it."

Han said some customers like the taste of the cigarettes, which lack many of the chemicals and additives added to mass-produced brands. Others like that the rolled cigarettes lack the "fire breaks" mandated in mass-produced brands, making their cigarettes easier to keep lit.

But mostly, people do it for the price.

"That's the main thing," Han said. "They are a lot cheaper."

$25 for 200 smokes

At U.S. 31 Tobacco, a run of "roll your own" cigarettes cost $25, including tax, for nearly 200 cigarettes, the same number carried in most cartons.

Under state-set minimum-pricing laws, the cheapest cartons of cigarettes sold come from brands called 1st Class and Ultra Gold, and still sell for $33.56. More popular brands, like Marlboro or Camel, can sell for more than $50 a carton.

"Even if you save just $10, it adds up," Han said.

Han said her store installed two machines last April, and that more and more people are switching to making their own cigarettes.

Although roll-your-own cigarettes have always had a niche market -- whether they were rolled by hand or at home using countertop machines -- many in the industry trace the recent phenomenon to the tax hikes of 2009.

Then, the federal government raised taxes on all packs of cigarettes, from 39 cents to $1 per pack. Two years earlier, Indiana raised its own state tax on cigarettes from 55 cents to 99.5 cents per pack -- meaning every pack of cigarettes sold now comes attached with $2 in taxes.

But loose tobacco -- sold by most as pipe tobacco -- doesn't come with the same tax costs.

Federal taxes on pipe tobacco are applied at a rate of 17.7 cents per ounce, while Indiana taxes pipe tobacco at a rate of 24 percent of the wholesale price.

In other words, while a carton of cigarettes automatically comes with $20 in taxes attached in Indiana, a carton of "roll-your-own" cigarettes results in taxes that are much, much lower.

Because of this phenomenon, other states have recently made a push to declare cigarettes rolled by a in-store machine as a "manufactured cigarette," worthy of the higher tax rate.

Last week, The Associated Press reported that Wisconsin's Department of Revenue sent a letter warning tobacco stores that use of the roll-your-own machines required the store to register as a cigarette manufacturer. Stores that use the machines now have to secure the proper licensing and permits to continue to operate.

Other states are considering similar options, with many stressing concerns that the easy-to-use machines are hampering states efforts to reduce the harmful health effects of smoking.

And a similar case has been filed in federal court by the Bureau of Alcohol Tobacco Tax and Trade, which believes the machines mean their owners should be classified as manufacturers. The outcome of that case is still pending, and an injunction has been granted, allowing stores to continue operating the machines.

In Indiana, at least for now, the roll-your-own machines appear to be safe.

Bob Dittmer, spokesman for the Indiana Department of Revenue, said no issues have been raised within the department about the machines, as long as store owners are continuing to pay the proper taxes on the pipe tobacco they use.

"Our plan is to continue to categorize it as loose tobacco," Dittmer said, "and to collect at the 24 percent rate."

Dittmer said he's heard of no one questioning the machines, but that if there was a call to reclassify the machines or the cigarettes they produce, it would have to come from the state legislature.

That's good news for retailers like Han, who said the machines have gained more and more users, many who say they are pinched by the economy.

The machines have also become popular with retailers. According to the Roll Your Own Filling Station website, 11 different stores within a 50-mile radius of South Bend now stock the machines, as do more than 50 other stores across the state.

But even as the machines become a staple for retailers, Han admits it's not for everyone.

"I don't like it as much," said Han, who prefers to smoke a regular brand. "It's not as smooth."

But to others, pinched on price and looking for a deal, the in-store machine-rolled cigarettes are better than the alternative.

"I know I should quit that's what everyone tells me," Wilson said. "But until I do, I might as well try to save some money."